Coinbase Global is launching a new platform to allow individual investors to purchase digital tokens before they are listed on its exchange.
Shares of Coinbase jumped over 4% on the news.
Digital-coin offerings were massively popular in 2017 and 2018 before prices crashed and regulators cracked down on token issuers.
The details
Coinbase will host about one token sale a month on its new platform, which will use an algorithm to determine how tokens are allocated to investors. Investors will be able to submit purchase requests during a one-week window. Following this period, an algorithm will distribute the tokens, aiming for broad and equitable allocation, Coinbase said.
Investors must be in good standing, fully registered and compliant with Coinbase to use the platform. Their token purchases will be paid in USD Coin, a dollar-pegged stablecoin issued by Circle Internet Group CRCL 3.13%increase; green up pointing triangle. Meanwhile, blockchain projects seeking to offer tokens through the platform will be evaluated based on a set of criteria, including user interest, the founding team’s record, as well as token economics and vesting schedules, the company said.
The token sales platform will be accessible to individual investors in most global regions at launch, with further expansion planned for the future.
Blockchain startup Monad will be the first project to offer its token through the platform next week. Coinbase said it intends to list any project that launches a token through its platform.
The context
The platform launch marks the first time since 2018 that U.S. retail traders will be able to participate in public token sales, then known as “initial coin offerings” or ICOs.
The ICO craze reached a peak in 2017 and 2018. Startups with no more than a white paper and no established product managed to draw in billions of dollars in ICO fundraising. The subsequent collapse in crypto prices, along with the rampant fraud, led to regulatory scrutiny and a drastic decline in token offerings in the following years.
Scott Shapiro, head of trading at Coinbase, said the exchange’s new platform would provide users with a more professional, safer way to buy new tokens. It will feature investor-protection mechanisms that discourage quick profit-taking and prevent immediate token dumping by project founders, he said. For example, users who immediately sell tokens will have reduced allocations in subsequent sales. And issuers and their affiliates will be limited from selling any tokens—either privately or on exchanges—for six months after the public sale on Coinbase.
“In 2017, the market was so young that no one really had a deep crypto resume before launching a token,” said Shapiro. “Now, projects and their teams have more to show than just a white paper.”
The big picture
Coinbase, the largest crypto exchange in the U.S. by trading volume, has been trying to diversify into more business lines and reduce its dependence on transaction fees from crypto trades. The token sales platform, which only charges issuers a fee for participating in the public sales, could still increase its revenue by expanding the number of tradable tokens on Coinbase and attracting users who currently rely on overseas exchanges.
The platform’s launch also marks another major stride toward Coinbase’s ambition to become an “everything exchange,” a one-stop shop for a vast array of financial services underpinned by blockchain technology.